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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
This appeal filed by the assessee is directed against the order of the ld.CIT(Appeals)-37, New Delhi dated 30.01.2020 and pertains to AY 2015-16.
The grounds of appeal
taken by the assessee read as under:- “1. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly erred in, dismissing the appeal in cryptic manner and by way of non speaking or reasoned order. ./2020
2. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner-of Income Tax (Appeals) grossly erred in confirming the action of Ld. Assessing Officer discharging the onerous dut of delivering justice with a fair mind in the wake of evidences produced and submitted by the appellant.
3. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner _of Income Tax (Appeals) grossly erred in confirming the action of Ld. Assessing Officer that the assessment order passed without any adequate opportunity of being heard.
4. On the facts and in the circumstances of the case as well as in law the Ld. Commissioner of Income Tax (Appeals) grossly .erred in confirming the addition made by Ld. Assessing Officer of 4,68,43,464/- in respect of charging' commission providing accommodation of entry 2,60,24,14646 @. 1.8% without consider the facts evidence submission made by appellant incorrect prospective disallow against the principle of natural justice.”
The assessee company is a non-banking finance company. From the analysis of the balance sheet, AO observed that assessee has advanced an amount of Rs.2,08,81,97,859/-. The assessee submitted list of 78 parties of Rs.279,10,01,130/- under the head ‘unsecured loans and advances’ and capital advances of Rs.13,57,50,000/- to 4 parties. Thus, the total amount of loans and advances comes to Rs.2,92,67,51,130/-.
The AO compared that the amount received from sale of shares by the assessee company and was of the opinion that these sale proceeds were utilized in making these finances. Thereafter, AO referred to the search carried out at various premises of Shri Surinder Kumar Jain and Shri Virendra Jain and its group concerns. He noted that these companies supported by these entry operators were entering into bogus transactions.
He noted that accommodation entries were provided in the shape of share of certain commission etc.. He referred to a list of 99 parties. He noted that in the said list, assessee’s name was also there. After analyzing the assessee’s financials, AO came to the figure of turnover as under :-
Particulars Amount (Rs.) Total Revenue from operations 31,50,85,558 Add.i) Total Sales price of the shares sold 2,02,69,80,050 ii) Debit Entry in the case of derivatives 14,63,36,211 iii) Credit Entry in the case of derivatives 11,72,42,877 Gross Total 2,60,56,44,696 Less : Amount already taken in revenue from 32,30,050 operations Net Total 2,60,24,14,646
AO referred that Jain Brothers have been established to provide accommodation entry and charging commission @ 1.8%. Hence, he held that the assessee’s total turnover is taxed @ 1.8% which came to Rs.4,68,43,464/- (1.8% of Rs.2,60,24,14,646/-).
5. Upon assessee’s appeal, ld. CIT (A) confirmed the addition made by the AO.
Against this order, assessee is in appeal before us. We have heard both the parties and perused the records.
7. Ld. Counsel of the assessee submitted that assessee is not denying that assessee has been engaging in bogus accommodation entries.
However, submitted that in some of the parties in the AO’s list itself, the commission income has been estimated at 0.50% by the AO himself. For this purpose, he also referred to ITAT decisions in which case profit has of table by the ld. Counsel of the assessee read as under :-
Assessment order Refers to the Relevant finding w.r.t passed in the case of assessment order dated to commission income M/s Legend Infoways 17.12.2018 passed u/s earned @ 0.5% on Pvt. Ltd. (Starts at 147 r.w.s 143(3) of the Page 32 (Para 3.4) of Page 25 of the Paper Income Tax Act, 1961 the Paper book. book.) in one of the Sl No.4 companies alleged to be operated by Jain Brothers. Assessment Order Refers to the Relevant finding w.r.t passed in the case of assessment order dated to commission income M/s Solomon Holdings 2912.2018 passed u/s earned @ 0.5% on Pvt. Ltd. (Starts at 147 r.w.s 143(3) of the Page 55 (Para 14.1) of Page 38 of the Paper Income Tax Act, 1961 the Paper book. book.) in one of the Sl No.5 companies alleged to be operated by Jain Brothers. Order dated This order has been Relevant finding by 23.01.2019 passed by passed by the Hon'ble the ITAT, Delhi. the Hon'ble ITAT, Tribunal disposing of Delhi in the case of 86 appeals by the Adonis Financial assessee wherein @ Services Pvt. Ltd. ITA Page 8 of the paper [@ Page 10 (Para 5] 6507/DEL/2015 book refers to the [@ Page 11 (Para 6-8] Sl.No.2 name of M/s Bhawani [@ Page 14 (Para 14- Portfolio Pvt. Ltd. 17] (ITA No. 6350 & 6351 of the paper book of 2016) against which department has filed an appeal before the Hon’ble Delhi High Court. Order passed by the Reference of the order Relevant finding by Hon'ble Delhi High in passed by the Hon’ble the Hon’ble DHC and Tribunal in ITA ./2020 163/2020 titled as No.6350 & 6351 if [@Page 2 (Para 4-6] DCIT, Delhi vs. M/s. 2916 @ Page 1 (Para [@Page 3 (Para 7-9] Bhawani Portfolio Pvt. 2) of the paper book Ltd. of the paper book Sl. No. Order dated Refers to the order Relevant finding by 15.11.2021 passed by passed by the Hon’ble the Hon’ble ITAT Hon’ble ITAT, Delhi Tribunal in the case of in ITA Adonis Financial [@Page 19, 20 & 21 No.6719/Del/2016 in services Pvt. Ltd. as (Para 5] the case of M/s. well as appeal filed by Ordinary Financial the Revenue in the [@Page 23 (Right Services Pvt. Ltd. case of M/s. Bhawani above Para 8] Sl.No.3 Portfolio Pvt. Ltd. as mentioned above. of the paper book
8. Per contra ld. DR for the Revenue relied upon the orders of the authorities below.
9. Upon careful consideration, we note that assessee is not denying that bogus accommodation entries have been provided but assessee’s claim is that assessee is earning 0.5% commission as against 1.8% taxed by the authorities below. For this purpose, in the submissions chart submitted by the assessee, reproduced above, it is noted that AO himself has estimated 0.5% rate of commission in some cases. Similarly, ITAT in the case of Adonis Financial Services Pvt. Ltd. in vide order dated 23.01.2019 held as under :-
“8. There is no dispute that the appellants were engaged in clandestine activities in the illegal business of providing accommodation entries to the beneficiaries. The beneficiaries purchased cheques from the appellants by paying cash. We are of the considered opinion that in such illegal activities, there cannot, and should not be any precedence. However, the Assessing Officer has
9. The evidentiary value of loose sheets have been considered at length by the Hon'ble Supreme Court in the case of CBI Vs. V.S. Shukla [1998] Taxmann.com 2155.
10. In the case of V.C. Shukla [supra] the Hon'ble Supreme Court held as under:
“A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers' correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 10(34) as against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him.”
11. Similar view was taken by the Hon'ble Supreme Court in the case of Common Cause, A registered Society Vs. UOI 394 ITR 220.
In the light of the ratio laid down by the Hon'ble Supreme Court [supra], notings found in the loose sheets would not do any good to the Revenue. The assessee has claimed 25 paise or 0.25% on the strength of the statement of kingpin Shri Tarun Goyal, who in his statement recorded under oath u/s 132(4) of the Income tax Act,
However, the statement of Shri Tarun Goyal recorded u/s 132(4) of the Act can be a good piece of evidence in the case of Shri Tarun Goyal only.
The ld. counsel for the assessee also relied heavily on various decisions of the co-ordinate bench wherein the Tribunal has adopted rate ranging from 0.15 paise to 0.50 paise i.e 0.15% to 0.50%.
As mentioned elsewhere, in such illegal activities, there cannot be any precedence and the rate varies from facts of each case.
To put an end to the litigation and in the interest of justice and fair play, in our considered opinion, 0.50 paise or 0.50% should be taken as the reasonable rate of profit/commission in such clandestine activities. We, accordingly, direct the Assessing Officers to adopt 0.50% or 0.50 paise and compute the profit accordingly.
We are of the opinion that there cannot be any profit element in intra-group transactions. We, therefore, direct the Assessing Officers to consider the transactions with outside parties only and then compute the profit.”
Furthermore, Hon’ble Delhi High Court in the case of DCIT vs. M/s. Bhawani Portfolio Pvt. Ltd. in ITA 158/2020 & CM Appl.
7946/2020 vide order dated 12.07.2021 in similar case of earning for estimating income in this situation has held as under :-
“3. Learned counsel for the Appellant states that the Assessment orders established that the credit in the bank accounts of the respondent-Assessee were treated as accommodation entry transactions since the Assessee had failed to produce any satisfactory reply and confirmations for the said transactions.
4. He states that the Assessment Orders were upheld by the CIT(A) holding that the respondent-Assessee had failed to discharge his onus to establish the nature and source of each credit entry appearing in the bank accounts and therefore for want of necessary details and supporting evidence, the Assessing Officer was justified
He states that the ITAT vide the impugned orders dated 23rd January 2019 partially allowed the respondent-Assessee's appeals and set-aside the assessment orders and CIT(A) orders on the basis that in such illegal activities, no precedence of rate could be applied and further held that there cannot be any profit element in inter- group transactions.
6. He emphasises that the ITAT had overlooked the fact that the respondent-Assessee had admitted to providing accommodation entries. He adds that the error in the impugned order is that ITAT had failed to recognize that the respondent-Assessee had in fact failed to discharge his onus to establish the nature and source of each credit entry appearing in the bank accounts. He states that the Assessing Officer was therefore justified in treating all the credit entries including inter-group transactions appearing in the bank accounts as income for the purpose of estimating commission income and in applying the rate of 2.25%.
Having perused the paper book, this Court finds that the Tribunal in the impugned orders has upheld the appellant’s contention that the respondent used to provide accommodation entries upon charging commission. However, the Tribunal has held that just because some loose sheets had been found stating that percentage of commission was 1.69% to 2.5% in some transactions, it cannot be presumed that for all transactions the respondent had earned a similar rate of commission.
Further relying upon past decisions by a number of Coordinate Benches of the Tribunal adopting a commission rate ranging from 0.15% to 0.50%, in similar matters, the Tribunal passed the impugned order.
This Court is of the view that none of the aforesaid findings are so perverse that they warrant an interference in appeal jurisdiction under Section 260A of the Income Tax Act, 1961. This Court is also of the view that the Tribunal, being the last fact finding authority, was entitled to guess work and arrive at a ballpark rate of commission. Consequently, no substantial question of law arises in the present appeals. Accordingly, the appeals along with pending applications are dismissed.”
the earning of commission @ 0.5% in the bogus accommodation entry business. Several ITAT orders have been referred above. It is not the case that any of them has been reversed by Hon’ble jurisdictional High Court. Rather we have an example in the case of DCIT vs. Bhawani Portfolio Pvt. Ltd. (supra) wherein Hon’ble Delhi High Court has approved the ITAT order of estimating the commission of 0.15% to 0.50% in such cases. Accordingly, in our considered opinion, following the above precedents, we direct the AO to estimate the commission in this case @ 0.5% as against 1.80% as made by the authorities below.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on this 6th day of February, 2023.